NPS Vatsalya Yojna : Now parents can invest in pension plans for children. In the budget, the Modi government has launched the NPS pension plan for children, NPS Vatsalya.
To make the New Pension Scheme (NPS) more attractive under the new tax regime, Finance Minister Nirmala Sitharaman proposed to increase the tax deduction for employers’ contribution from 10 percent to 14 percent. The minister also proposed to launch a scheme for parents and guardians’ contribution for minors, ‘NPS-Vatsalya’.
What is NPS Vatsalya?
NPS Vatsalya is a new pension scheme introduced in the Union Budget 2024 of India. It is designed to help parents and guardians start their child’s retirement savings journey early. The scheme can be converted into a normal NPS account upon reaching adulthood.
The scheme has been announced in the budget. However, details about the eligibility criteria, contribution limit, investment options and tax benefits are yet to be announced. However, experts believe that the scheme will promote responsible financial planning and is designed to ensure security after retirement.
NPS Vatsalya: New scheme for the future of children
Under NPS Vatasalya, parents or guardians can open an account in the name of their child. Regular contributions are required to this account. When the child becomes an adult, this account will be converted into a normal NPS account, making it a long-term savings plan for the child’s retirement.
Investment and withdrawal rules
If parents want to save for their child’s higher education or marriage, then NPS Vatsalya does not meet their expectations. In NPS, 25% of the money can be withdrawn after three years of opening the account, while after five years 20% of the money can be withdrawn tax-free and it is mandatory to invest the remaining amount in annuity.
If a subscriber invests Rs 10,000 every month for 10 years, a partial withdrawal of Rs 3 lakh can be made after 10 years. Premature lump sum withdrawal of Rs 4 lakh is also possible. However, this amount may not be sufficient to fully meet the higher education needs of the children.
NPS Vatsalya is a long-term investment plan for children’s retirement, but it needs many improvements to save for higher education. This can help parents plan better for their children’s future.
Budget 2024 announcement regarding NPS
In her 2024-25 Budget speech, Sitharaman said that to improve social security benefits, it is proposed to increase the employers’ deduction of expenditure for NPS from 10 per cent of the employee’s salary to 14 per cent. Similarly, it is proposed to deduct this expenditure from the income of employees in private sector, public sector banks and undertakings opting for the new tax regime up to 14 per cent of the salary.
